Digital Ally, Inc. (Nasdaq: DGLY), which develops, manufactures and
markets advanced video surveillance products for law enforcement,
homeland security and commercial applications, today announced its
operating results for the second quarter of 2019. An investor
conference call is scheduled for 11:15 a.m. EDT on Thursday, August
15, 2019 (see details below).
Recent Development
On August 5, 2019, we entered into a securities
purchase agreement with several institutional investors providing
for the issuance of (i) 8% Senior Secured Convertible Promissory
Notes due August 4, 2020 (the “Notes”) with a principal face amount
of $2,777,779, which Notes are convertible at a price per share of
$1.40; (ii) five-year warrants exercisable to purchase 571,428
shares of Common Stock at an exercise price of $1.8125 per share,
which warrants are immediately exercisable upon issuance and on a
cashless basis if we have not registered the warrants within 180
days after their date of issuance; and (iii) 89,285 shares of
Common Stock. Pursuant to the Purchase Agreement. The investors
purchased the securities for a purchase price of $2,500,000 and we
will apply the proceeds to working capital.
Highlights for Quarter Ended June 30,
2019
- Revenues decreased in second quarter 2019 to $2,546,983 from
$3,563,550 in second quarter 2018. The primary reason for the
revenue decrease in the second quarter 2019 is that we continue to
face challenges for our in-car and body-worn systems because our
competitors have released new products with advanced features and
have maintained their product price cuts. Our law enforcement
revenues declined over the prior period due to price-cutting,
willful infringement of our patents and other actions by our
competitors and adverse marketplace effects related to the patent
litigation. We introduced a new product platform, the EVO-HD,
specifically for in-car systems for law enforcement late in June
2019 to address our competitors’ new product features. This new
product platform utilizes advanced chipsets that will generate new
and highly advanced products for our law enforcement and commercial
customers, and we believe will improve product revenues in future
quarters.
- Our objective is to expand our recurring service revenue to
help stabilize our revenues on a quarterly basis. Revenues from
extended warranties have been increasing and were approximately
$343,119 for Q-2 2019, an increase of $69,648 (25%) over the
comparable quarter in 2018. Additionally, revenues from cloud
storage remained steady in Q-2 2019 at $169,874 compared to
approximately $181,419 for the prior year period. We are pursuing
several new market channels that do not involve our traditional law
enforcement and private security customers, such as our NASCAR, KMC
Brands and Kansas City Chiefs relationships, which we believe will
help expand the appeal of our products and service capabilities to
new commercial markets. If successful, we believe that these new
market channels could yield additional recurring service revenues
for us in the future.
- We asserted two significant patent infringement lawsuits
involving Axon and WatchGuard that have had significant impacts on
our quarterly results primarily due to the timing and amount of
legal fees expended on such lawsuits. We settled the WatchGuard
lawsuit in May 2019 for $6.0 million. In June 2019 the Court
granted Axon’s Motion for Summary Judgment, accepted Axon’s
position that it did not infringe on our patents and dismissed the
lawsuit. We have appealed the Court’s ruling and believe this
ruling will be reversed on appeal. Future quarterly results during
2019 and possibly beyond will continue to be impacted as this
appeal is heard and if the case moves to trial. If we win the
appeal and the case moves to trial, the jury will determine whether
Axon infringed our patents.
- We recently announced a new partnership with KMC Brands, based
in Desoto, KS. The two companies have agreed to a five-year
exploratory venture to develop a documentation and validation
program to ensure that all of the industrial hemp grown and
processed by KMC Brands is certified and traceable from start to
finish.
- We have entered into a multi-year agreement with the Kansas
City Chiefs Football Club to provide the Chiefs’ security personnel
with our innovative body-worn video cameras and cloud-based storage
software to document interactions between security personnel and
guests. As an industry leader in video solution products, we will
provide the Kansas City Chiefs with a full turn-key video solution
before, during and after events at Arrowhead Stadium.
- We also won the 2019 Golden Eagle Award winner at the National
Sports Safety and Security Conference & Exhibition. This
prestigious industry award for the deployment of our patented
FirstVu HD body-worn camera technology at MetLife Stadium in East
Rutherford, New Jersey home of the New York Giants and New York
Jets football teams.
Management Comments
“We continue to face increased challenges for
our in-car and body-worn systems due to our competitors releasing
new products with advanced features, maintaining their product
price cuts and in some cases infringing on our patents,” stated
Stanton E. Ross, Chief Executive Officer of Digital Ally, Inc. “We
continue to expand our recurring service-based revenue to help
stabilize and grow our revenues on a quarterly basis. We’ve
introduced a new product platform, the EVO-HD, designed
specifically for in-car systems in June 2019 to address our
competitors’ new product features which we believe will be
attractive to customers and help us regain market share. We are
also pursuing several new market channels that do not involve our
traditional law enforcement and private security customers,
including our technology partner affiliation with NASCAR, KMC
Brands and the Kansas City Chiefs, which we believe will help
expand the appeal of our products and service capabilities to new
commercial markets. If successful, these new market channels could
yield recurring service revenues in the future.”
“We are pleased that we have settled our lawsuit
with WatchGuard. The settlement should serve notice to the industry
that we are the rightful owner of ‘auto-activation’ patents and
that we intend to defend our patents and to hold infringing parties
responsible for their actions. We are disappointed with what we
believe is the Court’s misreading of our patent rights in our
lawsuit with Axon, but remain confident that the ruling will be
reversed on appeal,” concluded Ross.
Second Quarter Operating
Results
For the three months ended June 30, 2019, our
total revenue decreased by 29% to approximately $2.5 million,
compared with revenue of approximately $3.6 million for the three
months ended June 30, 2018. The primary reason for the revenue
decrease in the second quarter 2019 is that we continue to face
increased challenges for our in-car and body-worn systems because
our competitors have released new products with advanced features,
maintained their product price cuts and continued to willfully
infringe our patents. We also are experiencing certain adverse
marketplace impacts related to the patent litigation. We introduced
our EVO-HD late in second quarter 2019 with the goal of enhancing
our product line features to meet these competitive challenges. Our
gross margin decreased 41% to $950,812 for the three months ended
March 31, 2019 versus $1,618,467 in 2018.
The gross margin decrease is commensurate with
the 29% decrease in total revenues and an increase in our cost of
sales as a percentage of revenues to 63% during the three months
ended June 30, 2019 from 55% for the three months ended June 30,
2018. We believe that gross margins will improve during 2019 if we
improve revenue levels primarily through the introduction of
products such as the EVO-HD, continue to reduce product warranty
issues and shift our revenues to higher-margin cloud services.
Selling, General and Administrative (“SG&A”)
expenses decreased approximately 153% to $(1,616,830) in the three
months ended June 30, 2019 versus $3,055,776 a year earlier. The
significant decrease was fueled by the patent litigation settlement
of $6.0 million that we received in second quarter 2019. Exclusive
of the patent litigation settlement selling, general and
administrative expenses as a percentage of sales increased to 172%
in second quarter 2019 compared to 85% in the same period in 2018.
A portion of the increase is attributable to sponsorship of the
NASCAR race in May 2019 and efforts to expand brand awareness and
leverage our relationship with NASCAR for business opportunities.
Additionally, we increased our staffing from 83 at June 30, 2018 to
113 at June 30, 2019 and paid bonuses to executives during the
three months ended June 30, 2019.
We reported an operating income of $2,567,642
for the three months ended June 30, 2019, compared with an
operating loss of ($1,437,309) in the previous year.
We elected to record the obligation related to
the Proceeds Investment Agreement (“PIA”) at fair-value.
Accordingly, the estimated fair value of the obligation increased
as a result of the $6.0 million litigation settlement with
WatchGuard and the delay in the Axon patent litigation caused by
the unfortunate ruling on the motion for Summary Judgment. We will
now have to wait while the Appellate Court considers our appeal.
The increase in fair value of the PIA resulted in a non-cash charge
of $2,961,000 for the three months ended June 30, 2019.
We reported a net loss of ($387,730), or ($0.03)
per share, for the second quarter of 2019, compared to a prior-year
net loss of ($2,962,890), or ($0.42) per share. This is an
improvement of $2,575,160 (87%). No income tax provision or benefit
was recorded in the first six months of either 2019 or 2018.
Six-Month Operating Results
For the six months ended June 30, 2019, our
total revenue decreased by 16% to approximately $5.1 million,
compared with revenue of approximately $6.0 million for the six
months ended June 30, 2018. Gross profit decreased 22% to
$2,132,552 for the six months ended June 30, 2019 versus $2,727,861
in 2018. Our gross margin decrease is primarily attributable to the
16% decrease in revenues and the cost of sales as percentage of
revenues increasing to 58% for the six months ended June 30, 2019
from 55% for the six months ended June 30, 2018.
Selling, General and Administrative (“SG&A”)
expenses decreased approximately 57% to $2,651,068 in the six
months ended June 30, 2019, versus $6,138,486 a year earlier. The
significant decrease was fueled by the patent litigation settlement
of $6.0 million that we received in second quarter 2019. Exclusive
of the patent litigation settlement overall selling, general and
administrative expenses as a percentage of sales increased to 170%
for the six months ended June 30, 2019 compared to 102% in the same
period in 2018.
We reported an operating loss of ($518,516) for
the six months ended June 30, 2019, compared to an operating loss
of ($3,410,625) in the previous year.
We elected to record the obligation related to
the PIA at fair-value. Accordingly, the estimated fair value of the
obligation increased as a result of the $6.0 million litigation
settlement with WatchGuard and the delay in the Axon patent
litigation caused by the unfortunate ruling on the motion for
Summary Judgment. We will now have to wait as the Appellate Court
considers our appeal. The increase in fair value of the PIA
resulted in a non-cash charge of $3,098,000 for the six months
ended June 30, 2019.
We reported a net loss of ($3,592,904), or
($0.32) per share, in the first half of 2019 compared to a
prior-year net loss of ($5,551,122), or ($0.78) per share. No
income tax provision or benefit was recorded in the first six
months of either 2019 or 2018.
Investor Conference Call
The Company will host an investor
conference call at 11:15 a.m. EDT on Thursday August 15, 2019, to
discuss its operating results for the second quarter 2019 and the
status of its patent infringement litigation against Axon
Enterprise, Inc. ("Axon," formerly known as TASER International,
Inc.), along with other topics of interest.
Shareholders and other interested parties may participate
in the conference call by dialing
844-761-0863 and entering conference
ID# 1990286 a few minutes before
11:15 a.m. EDT on Thursday August 15, 2019.
A replay of the conference call will be
available two hours after its completion, from August 15, 2019
until 11:59 p.m. on October 15, 2019 by dialing 855-859-2056 and
entering the conference ID #
1990286.
For additional news and information please
visit or follow us on Twitter @digitalallyinc and
Facebook www.facebook.com/DigitalAllyInc
Follow additional Digital Ally Inc. social media channels
here:
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This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Act of 1934. These
forward-looking statements are based largely on the expectations or
forecasts of future events, can be affected by inaccurate
assumptions, and are subject to various business risks and known
and unknown uncertainties, a number of which are beyond the control
of management. Therefore, actual results could differ materially
from the forward-looking statements contained in this press
release. A wide variety of factors that may cause actual results to
differ from the forward-looking statements include, but are not
limited to, the following: whether the Company will be able to
improve its revenue and operating results; whether it will be able
to resolve its liquidity and operational issues; whether it will be
able to achieve improved production and other efficiencies to
restore its gross and operating margins in the future; whether the
Company will be able to continue to expand into non-law enforcement
markets and increase its service based revenue; whether the Company
has resolved its product quality and supply chain issues; whether
there will be commercial markets, domestically and internationally,
for one or more of the Company’s new products, such as the EVO-HD;
whether the Company will achieve positive outcomes in its
litigation with Axon, including whether the Appeals Court will rule
in our favor; whether and the extent to which the US Patent and
Trademark Office (USPTO) rulings will curtail, eliminate or
otherwise have an effect on the actions of Axon and others in the
marketplace respecting the Company, its products and customers; its
ability to deliver its newer product offerings as scheduled, and in
particular the new EVO-HD product platform, obtain the required
components and products on a timely basis, and have them perform as
planned; whether the new partnership with NASCAR, KMC Brands and
the Kansas City Chiefs will help expand the appeal for the
Company’s products and services; its ability to maintain or expand
its share of the markets in which it competes, including those
outside the law enforcement industry; whether it will be able to
adapt its technology to new and different uses, including being
able to introduce new products; competition from larger, more
established companies with far greater economic and human
resources; its ability to attract and retain customers and quality
employees; the effect of changing economic conditions; and changes
in government regulations, tax rates and similar matters. These
cautionary statements should not be construed as exhaustive or as
any admission as to the adequacy of the Company’s disclosures. The
Company cannot predict or determine after the fact what factors
would cause actual results to differ materially from those
indicated by the forward-looking statements or other statements.
The reader should consider statements that include the words
“believes,” “expects,” “anticipates,” “intends,” “estimates,”
“plans,” “projects,” “should,” or other expressions that are
predictions of or indicate future events or trends, to be uncertain
and forward-looking. It does not undertake to publicly update or
revise forward-looking statements, whether because of new
information, future events or otherwise. Additional information
respecting factors that could materially affect the Company and its
operations are contained in its annual report on Form 10-K for the
year ended December 31, 2018 and quarterly report on Form 10-Q for
the three and six months ended June 30, 2019, filed with the
Securities and Exchange Commission.
For Additional Information, Please
Contact:Stanton E. Ross, CEO, at (913) 814-7774
or Thomas J. Heckman, CFO, at (913)
814-7774(Financial Highlights Follow)
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS JUNE
30, 2019 AND DECEMBER 31, 2018
|
|
(Unaudited) |
|
|
|
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
331,665 |
|
|
$ |
3,598,807 |
|
Accounts receivable-trade, less allowance for doubtful accounts of
$90,000 – 2019 and $70,000 - 2018 |
|
|
1,612,046 |
|
|
|
1,847,886 |
|
Accounts receivable-other |
|
|
500,968 |
|
|
|
382,412 |
|
Inventories, net |
|
|
6,792,049 |
|
|
|
6,999,060 |
|
Income tax refund receivable, current |
|
|
44,603 |
|
|
|
44,603 |
|
Prepaid expenses |
|
|
429,268 |
|
|
|
429,403 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
9,710,599 |
|
|
|
13,302,171 |
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and
equipment, net |
|
|
182,975 |
|
|
|
247,541 |
|
Intangible assets, net |
|
|
444,982 |
|
|
|
486,797 |
|
Operating lease right of use
assets |
|
|
276,338 |
|
|
|
— |
|
Income tax refund
receivable |
|
|
45,397 |
|
|
|
45,397 |
|
Other assets |
|
|
389,749 |
|
|
|
256,749 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
11,050,040 |
|
|
$ |
14,338,655 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
(Deficit) |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,857,620 |
|
|
$ |
784,599 |
|
Accrued expenses |
|
|
1,062,234 |
|
|
|
2,080,667 |
|
Current portion of operating lease obligations |
|
|
357,498 |
|
|
|
— |
|
Contract liabilities-current |
|
|
1,794,457 |
|
|
|
1,748,789 |
|
Income taxes payable |
|
|
3,933 |
|
|
|
3,689 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
5,075,742 |
|
|
|
4,617,744 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Proceeds investment agreement, at fair value- less current
portion |
|
|
6,240,000 |
|
|
|
9,142,000 |
|
Contract liabilities-long term |
|
|
1,864,989 |
|
|
|
1,991,091 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
13,180,731 |
|
|
|
15,750,835 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder’s Deficit |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized;
shares issued: 11,494,055 – 2019 and 10,445,445 – 2018 |
|
|
11,494 |
|
|
|
10,445 |
|
Additional paid in capital |
|
|
80,990,851 |
|
|
|
78,117,507 |
|
Treasury stock, at cost (63,518 shares) |
|
|
(2,157,226 |
) |
|
|
(2,157,226 |
) |
Accumulated deficit |
|
|
(80,975,810 |
) |
|
|
(77,382,906 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit |
|
|
(2,130,691 |
) |
|
|
(1,412,180 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit |
|
$ |
11,050,040 |
|
|
$ |
14,338,655 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE
30, 2019 FILED WITH THE SEC)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE THREE AND SIX MONTHS
ENDEDJUNE 30, 2019 AND
2018(Unaudited)
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
1,945,724 |
|
|
$ |
2,993,700 |
|
|
$ |
3,866,188 |
|
|
$ |
4,984,813 |
|
Service and other |
|
|
601,259 |
|
|
|
569,850 |
|
|
|
1,231,591 |
|
|
|
1,050,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
2,546,983 |
|
|
|
3,563,550 |
|
|
|
5,097,779 |
|
|
|
6,035,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
1,468,828 |
|
|
$ |
1,831,615 |
|
|
$ |
2,731,899 |
|
|
$ |
3,080,360 |
|
Service and other |
|
|
127,343 |
|
|
|
113,468 |
|
|
|
233,328 |
|
|
|
226,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
1,596,171 |
|
|
|
1,945,083 |
|
|
|
2,965,227 |
|
|
|
3,307,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
950,812 |
|
|
|
1,618,467 |
|
|
|
2,132,552 |
|
|
|
2,727,861 |
|
Selling, general and
administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense |
|
|
582,905 |
|
|
|
333,760 |
|
|
|
1,045,076 |
|
|
|
773,880 |
|
Selling, advertising and promotional expense |
|
|
1,237,947 |
|
|
|
712,008 |
|
|
|
1,993,936 |
|
|
|
1,386,413 |
|
Stock-based compensation expense |
|
|
585,195 |
|
|
|
594,228 |
|
|
|
1,310,393 |
|
|
|
1,087,746 |
|
General and administrative expense |
|
|
1,977,123 |
|
|
|
1,415,780 |
|
|
|
4,301,663 |
|
|
|
2,890,447 |
|
Patent litigation settlement |
|
|
(6,000,000 |
) |
|
|
— |
|
|
|
(6,000,000 |
) |
|
|
— |
|
Total selling, general and
administrative expenses |
|
|
(1,616,830 |
) |
|
|
3,055,776 |
|
|
|
2,651,068 |
|
|
|
6,138,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
2,567,642 |
|
|
|
(1,437,309 |
) |
|
|
(518,516 |
) |
|
|
(3,410,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
5,628 |
|
|
|
684 |
|
|
|
23,612 |
|
|
|
2,300 |
|
Interest expense |
|
|
— |
|
|
|
(152,975 |
) |
|
|
— |
|
|
|
(283,203 |
) |
Change in warrant derivative
liabilities |
|
|
— |
|
|
|
(310,195 |
) |
|
|
— |
|
|
|
(309,306 |
) |
Secured convertible debentures
issuance expense |
|
|
— |
|
|
|
(220,312 |
) |
|
|
— |
|
|
|
(220,312 |
) |
Loss on the extinguishment of
secured convertible debentures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(500,000 |
) |
Change in fair value of
proceeds investment agreement |
|
|
(2,961,000 |
) |
|
|
— |
|
|
|
(3,098,000 |
) |
|
|
— |
|
Change in fair value of
secured convertible debentures |
|
|
— |
|
|
|
(842,783 |
) |
|
|
— |
|
|
|
(829,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
benefit |
|
|
(387,730 |
) |
|
|
(2,962,890 |
) |
|
|
(3,592,904 |
) |
|
|
(5,551,122 |
) |
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(387,730 |
) |
|
$ |
(2,962,890 |
) |
|
$ |
(3,592,904 |
) |
|
$ |
(5,551,122 |
) |
Net loss per share
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.03 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.78 |
) |
Diluted |
|
$ |
(0.03 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
11,305,248 |
|
|
|
7,129,260 |
|
|
|
11,124,222 |
|
|
|
7,153,219 |
|
Diluted |
|
|
11,305,248 |
|
|
|
7,129,260 |
|
|
|
11,124,222 |
|
|
|
7,153,219 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE
30, 2019 FILED WITH THE SEC)
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